BSNL VRS-2019 Compensation Held Exempt Under Section 10(10B): ITAT Visakhapatnam Ruling Explained

1. Background of the Dispute

A group of 26 appeals came up before the ITAT Visakhapatnam involving different assessees, all former employees of Bharat Sanchar Nigam Limited (BSNL). Each of them had:

  • Opted for the BSNL Voluntary Retirement Scheme – 2019 (VRS-2019)
  • Received ex-gratia/compensation under that scheme
  • Initially offered the compensation to tax in their original returns of income
  • Had their returns processed under Section 143(1) without any adjustment

Subsequently, guided by judicial developments in similar BSNL cases, these assessees approached the appellate authorities claiming that the amount received under BSNL VRS-2019 was in substance retrenchment compensation, fully exempt under Section 10(10B) of the Income Tax Act 1961, and not merely voluntary retirement benefits falling under Section 10(10C).

They also raised an additional claim in some appeals for exemption of leave salary under Section 10(10AA)(i).

Because they had not claimed these exemptions in the original returns, and many appeals were filed with very long delays (up to nearly 2,000 days), a cluster of procedural and substantive issues arose before the Tribunal.

2. Facts Common to All Assessees

2.1 Employment and VRS-2019

  • All assessees were employees of BSNL, a public sector undertaking under the administrative control of the Department of Telecommunications, Government of India.
  • Pursuant to a decision of the Union Cabinet for revival of BSNL — including reduction of employee cost and allocation of 4G spectrum — BSNL framed the Voluntary Retirement Scheme – 2019 for employees aged 50 years and above.
  • Under this scheme, eligible employees could opt for separation and receive retirement ex-gratia/compensation, funded through Government budgetary support.

2.2 Original Tax Treatment

  • The assessees accepted VRS-2019, received ex-gratia payments, and BSNL deducted TDS as per the then-prevailing understanding of law.
  • Each assessee included the ex-gratia in taxable income while filing returns for the relevant assessment year (including A.Y. 2020-21).
  • These returns were processed under Section 143(1) and accepted as filed, typically without any tax dispute at that stage.

2.3 Subsequent Discovery of Exemption Possibility

Later, as various benches of the ITAT across the country started ruling that BSNL VRS-2019 ex-gratia was in substance retrenchment compensation entitled to full exemption under Section 10(10B), BSNL retirees began filing appeals or applications, even belatedly, to seek similar benefits.

The assessees in this batch:

  • Claimed they had not been aware of the correct legal position when filing original returns.
  • Attributed their omission to ignorance of law and/or incorrect professional advice.
  • Filed appeals before the respective Commissioner/Addl./Joint Commissioner of Income Tax (Appeals) [referred to as Addl./JCIT(A)] seeking:
    • Exemption under Section 10(10B) for the ex-gratia, and
    • In certain cases, condonation of substantial delay in filing the appeals.

3. Orders of First Appellate Authorities

The Addl./JCIT(A) across these cases passed broadly similar orders, which led to further appeals before the ITAT. The key patterns in those first appellate orders were:

3.1 Rejection on Ground of Delay

In appeals where the delay in filing before the Addl./JCIT(A) ranged from about 1,000 days to 2,000 days:

  • The authorities held that the assessees had not established “sufficient cause” for condonation.
  • Consequently, such appeals were treated as time-barred and were either dismissed in limine or held as not admissible.

3.2 Refusal to Entertain Fresh Claim Without Revised Return

In some matters, the Addl./JCIT(A) took the view that:

  • A fresh claim for exemption under Section 10(10B) could only be made through a revised return, and
  • At the appellate stage, such a new claim was not maintainable, relying on Goetze (India) Ltd. Vs CIT (284 ITR 323 (SC)).

In one case, the appeal was branded “devoid of merit” solely because it was a fresh claim at appellate stage.

In another, the appeal was also stated to be not maintainable as per Section 246(1) of the Act.

3.3 Characterisation of the Scheme as VRS under Section 10(10C)

In the remaining cases where the Addl./JCIT(A) examined merits:

  • They distinguished judgments involving schemes of other undertakings such as HPFMCL and HMT Tractor Division.
  • Concluded that the BSNL VRS-2019 was a genuine voluntary retirement scheme, squarely falling under Section 10(10C) and not as retrenchment compensation under Section 10(10B).
  • Accordingly, upheld the treatment adopted by the AO/CPC and dismissed the appeals.

4. Issues Before the ITAT Visakhapatnam

The ITAT was required to deal with the following: